Stock Analysis on Net
Stock Analysis on Net

Cisco Systems Inc. (NASDAQ:CSCO)

Present Value of Free Cash Flow to the Firm (FCFF)

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Free cash flow to the firm (FCFF) is generally described as cash flows after direct costs and before any payments to capital suppliers.

Intrinsic Stock Value (Valuation Summary)

Cisco Systems Inc., free cash flow to the firm (FCFF) forecast

US$ in millions, except per share data

Microsoft Excel
Year Value FCFFt or Terminal value (TVt) Calculation Present value at 17.70%
01 FCFF0 13,928
1 FCFF1 15,066 = 13,928 × (1 + 8.17%) 12,800
2 FCFF2 16,529 = 15,066 × (1 + 9.71%) 11,932
3 FCFF3 18,388 = 16,529 × (1 + 11.25%) 11,278
4 FCFF4 20,740 = 18,388 × (1 + 12.79%) 10,807
5 FCFF5 23,710 = 20,740 × (1 + 14.32%) 10,497
5 Terminal value (TV5) 803,056 = 23,710 × (1 + 14.32%) ÷ (17.70% – 14.32%) 355,531
Intrinsic value of Cisco Systems Inc. capital 412,845
Less: Debt (fair value) 29,363
Intrinsic value of Cisco Systems Inc. common stock 383,482
 
Intrinsic value of Cisco Systems Inc. common stock (per share) $97.27
Current share price $112.20

Based on: 10-K (reporting date: 2026-07-25).

1 See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.

Weighted Average Cost of Capital (WACC)

Cisco Systems Inc., cost of capital

Microsoft Excel
Value1 Weight Required rate of return2 Calculation
Equity (fair value) 442,358 0.94 18.61%
Debt (fair value) 29,363 0.06 3.91% = 4.75% × (1 – 17.78%)

Based on: 10-K (reporting date: 2026-07-25).

1 US$ in millions

   Equity (fair value) = No. shares of common stock outstanding × Current share price
= 3,942,586,873 × $112.20
= $442,358,247,150.60

   Debt (fair value). See details »

2 Required rate of return on equity is estimated by using CAPM. See details »

   Required rate of return on debt. See details »

   Required rate of return on debt is after tax.

   Estimated (average) effective income tax rate
= (17.10% + 8.30% + 15.60% + 17.70% + 18.40% + 20.10%) ÷ 6
= 17.78%

WACC = 17.70%

FCFF Growth Rate (g)

FCFF growth rate (g) implied by PRAT model

Cisco Systems Inc., PRAT model

Microsoft Excel
Average Jul 25, 2026 Jul 26, 2025 Jul 27, 2024 Jul 29, 2023 Jul 30, 2022 Jul 31, 2021
Selected Financial Data (US$ in millions)
Interest expense 1,470 1,593 1,006 427 360 434
Net income 13,267 10,180 10,320 12,613 11,812 10,591
 
Effective income tax rate (EITR)1 17.10% 8.30% 15.60% 17.70% 18.40% 20.10%
 
Interest expense, after tax2 1,219 1,461 849 351 294 347
Add: Cash dividends declared 6,553 6,437 6,384 6,302 6,224 6,166
Interest expense (after tax) and dividends 7,772 7,898 7,233 6,653 6,518 6,513
 
EBIT(1 – EITR)3 14,486 11,641 11,169 12,964 12,106 10,938
 
Short-term debt 10,161 5,232 11,341 1,733 1,099 2,508
Long-term debt, excluding current portion 19,372 22,861 19,621 6,658 8,416 9,018
Equity 50,285 46,843 45,457 44,353 39,773 41,275
Total capital 79,818 74,936 76,419 52,744 49,288 52,801
Financial Ratios
Retention rate (RR)4 0.46 0.32 0.35 0.49 0.46 0.40
Return on invested capital (ROIC)5 18.15% 15.53% 14.62% 24.58% 24.56% 20.72%
Averages
RR 0.42
ROIC 19.69%
 
FCFF growth rate (g)6 8.17%

Based on: 10-K (reporting date: 2026-07-25), 10-K (reporting date: 2025-07-26), 10-K (reporting date: 2024-07-27), 10-K (reporting date: 2023-07-29), 10-K (reporting date: 2022-07-30), 10-K (reporting date: 2021-07-31).

1 See details »

2026 Calculations

2 Interest expense, after tax = Interest expense × (1 – EITR)
= 1,470 × (1 – 17.10%)
= 1,219

3 EBIT(1 – EITR) = Net income + Interest expense, after tax
= 13,267 + 1,219
= 14,486

4 RR = [EBIT(1 – EITR) – Interest expense (after tax) and dividends] ÷ EBIT(1 – EITR)
= [14,486 – 7,772] ÷ 14,486
= 0.46

5 ROIC = 100 × EBIT(1 – EITR) ÷ Total capital
= 100 × 14,486 ÷ 79,818
= 18.15%

6 g = RR × ROIC
= 0.42 × 19.69%
= 8.17%

FCFF growth rate (g) implied by single-stage model

g = 100 × (Total capital, fair value0 × WACC – FCFF0) ÷ (Total capital, fair value0 + FCFF0)
= 100 × (471,721 × 17.70% – 13,928) ÷ (471,721 + 13,928)
= 14.32%

where:

Total capital, fair value0 = current fair value of Cisco Systems Inc. debt and equity (US$ in millions)
FCFF0 = the last year Cisco Systems Inc. free cash flow to the firm (US$ in millions)
WACC = weighted average cost of Cisco Systems Inc. capital

FCFF growth rate (g) forecast

Cisco Systems Inc., H-model

Microsoft Excel
Year Value gt
1 g1 8.17%
2 g2 9.71%
3 g3 11.25%
4 g4 12.79%
5 and thereafter g5 14.32%

where:
g1 is implied by PRAT model
g5 is implied by single-stage model
g2, g3 and g4 are calculated using linear interpolation between g1 and g5

Calculations

g2 = g1 + (g5 – g1) × (2 – 1) ÷ (5 – 1)
= 8.17% + (14.32% – 8.17%) × (2 – 1) ÷ (5 – 1)
= 9.71%

g3 = g1 + (g5 – g1) × (3 – 1) ÷ (5 – 1)
= 8.17% + (14.32% – 8.17%) × (3 – 1) ÷ (5 – 1)
= 11.25%

g4 = g1 + (g5 – g1) × (4 – 1) ÷ (5 – 1)
= 8.17% + (14.32% – 8.17%) × (4 – 1) ÷ (5 – 1)
= 12.79%